Fiscal Federalism in India: Emerging Issues

Abstract

The finance commission was devised in our constitution as a mechanism for providing predictability in the fiscal federal relations for 5 years and flexibility to review and revise the relations generally every 5 years, and the Planning commission was an innovation of union government that gave flexibility to accommodate fiscal compulsions of socio-political developments from time to time. The finance commissions, 13 of them and the planning commission determined the federal fiscal relations for well over six decades since independence. NITI Aayog is established in January 2015, and the origins of NITI Aayog could be traced to the disenchantment with the Planning commission. Though the nomenclature of NITI Aayog is different, the process of setting up is similar to planning commission. The 14th finance commission has provided an operational frame work to dispense with the distinction between Plan and Non plan. The success of NITI Aayog will depend on the manner in which new realities of economic management are captured in the process of planning being involved in it. NITI Aayog now will also hope fully address New Realities, sooner than later to avoid a vacuum.